The Outsourcing or Internalizing Payment Trajectories
Assessing the strategic factors of outsourcing readiness that determine the
degree of outsourcing of payment trajectories
Name: Kristian Hanson Student number: 1622056 Date: November 3, 2011 University of Groningen
Faculty of Economics and Business MSc, Business Administration Strategy & Innovation
1st supervisor:
Dr. René van der Eijk 2nd supervisor: Dr. Florian Noseleit By order of Ziggo B.V. Heleen Weewer
Abstract
In a practice-oriented research, this paper has assessed the strategic factors of outsourcing readiness that determine the degree of outsourcing of payment trajectories. The contribution of this research is made in two main ways: it aids the theoretical body of research by testing the propositions and hypotheses in the context of outsourcing payment trajectories, and it contributes in a practical sense by providing clear recommendations for a specific case study. The three most important strategic factors of outsourcing readiness that have been identified in the literature are: (1) strategic sourcing, (2) outsourcing relationship, and (3) environmental factors. In the context of payment trajectories, two factors have been added: (4) financial results and (5) customer satisfaction. These five factors have been analyzed to what extent they fit the scope of the outsourcing decision concerning payment trajectories. For the first four factors, this entails a qualitative case study analysis, and for the fifth and last factor an extensive customer satisfaction research is drawn up. From that analysis, quantitative data is derived and used in statistical analysis. The outcomes of this study contribute to the recommendations that have been given to the practitioner.
The results suggest that for the majority of strategic factors, evidence has been found in the case study, and propositions are supported. The constructs business alignment, activity definition and the availability of knowledge are not supported. The financial results suggest that the difference between specialized vendors and internalized collection agencies are negligible. Yet, upcoming legislative alterations may change that situation. In terms of customer satisfaction, a clear preference exists for an internalized collection agency or department, and of the constructs customer appreciation, loyalty, image and trust the first three are supported in the analysis. Additionally, as a recommendation for the case study, it is advised to internalize a segment of the amicable collection phase. This is due to the fact that little effort is necessary to collect a relatively large part of the amicable collection revenues, the commitment enhances the strategic presence of the firm and the customer satisfaction analysis pointed out a clear preference for an internal collection agency. However, upcoming legislative changes need to be taken into consideration.
Keywords: payment trajectory; outsourcing decision; outsourcing readiness; customer
Executive summary
Outsourcing is a widely discussed phenomenon in academic literature. Yet, the outsourcing of payment trajectories, and all complexities that it entails, is not. The links that have been made in this research are therefore relatively new to some extent. It contributes in two main ways: the theoretical setting of outsourcing of payment trajectories and the practical setting of aiding the decision-making process concerning outsourcing or internalizing the payment trajectories. The research constitutes of determining the strategic factors that influence the degree of outsourcing of payment trajectories. The main research question of the paper encompasses the presence or absence of the strategic factors (1) strategic sourcing, (2) outsourcing relationship, (3) environmental factors, (4) financial results and (5) customer satisfaction when determining the degree of outsourcing of payment trajectories. Within a firm, data has been collected. The data for the factors strategic sourcing, outsourcing relationship and environmental factors has been collected from interviews that have been conducted with relevant employees internal and external to the firm. The data for the financial results has been derived from financial statements within the firm. And last, the data for the customer satisfaction analysis has been obtained from defaulter customers that have been in contact with the external collection agency. The results of the factors are discussed next.
Within the factor strategic sourcing, three constructs have been identified. Strategic sourcing refers to choosing the right activity to outsource (Insigna and Verle 2000; McIvor 2000; Quinn and Hilmer 1994; Teece 1986). This construct has been supported in the case study. Business alignment is described as the need for uniformity between the corporate and outsourcing strategy (Jennings 1997; Venkatesan 1992). This construct is not supported in the data that is derived from the interviews, as imperative parts of the corporate strategy are not supported in the outsourcing strategy. The third and last construct within the strategic sourcing factor is management involvement and commitment. Both involvement and commitment are deemed necessary in outsourcing an activity (Baldwin et al. 2001; Martin et al. 2008; Smith and McKeen 2004). This construct is also supported by the data in the case study.
The outsourcing relationship has been divided into three constructs: initialization and development of the relationship (Kern and Willcocks 2000; Ring and Van de Ven 1994), activity definition (Barthélemy 2001; Campbell 1995; Fisher et al. 2008; Jennings 1997), and contract flexibility and duration (Barthélemy and Geyer 2004; Lacity et al. 1996; Smith and McKeen 2004). Whereas the constructs initialization and development of the relationship and the contract flexibility and duration are supported, the construct activity definition is not supported due to a lack of transparency in the activity.
Of the two environmental factors, supply markets (Jennings 1997; Fisher et al. 2008) and availability of knowledge (Campbell 1995; Martin et al. 2008), one is supported and one is not. An abundance of vendors in the supply market is deemed necessary in the case study, despite relatively high switching costs. However, the availability of relevant knowledge is not, due to the relatively high level of turbulence and uncertainty in the context.
legislation. The comparison has clearly shown that the external bailiff firm is able to obtain better financial results from the whole payment trajectory. This is largely due to the fact that bailiff firms are the only ones that are allowed to operate in the judicial phase of the trajectory. There they are able to obtain the relatively larger sums and accompanied judicial fees. For that reason, it can be argued that from a financial perspective specialized firms are able to better perform within the payment trajectory.
Following Brown and Chin (2004), successfully serving customers would depend on the firm‘s leverage over its outsourced activities, especially those that are interaction-intensive. Therefore, it has been hypothesized that customer satisfaction is negatively related to the degree of outsourcing of payment trajectories. The customer satisfaction analysis encompasses four constructs: customer appreciation, customer loyalty, company image and customer trust. Of these four constructs, customer appreciation, customer loyalty and company image are supported within the analysis. Also, the analysis showed a clear preference for an internal collection agency among defaulter customers.
Table of Contents Page 1. Introduction 6 1.1 Current Situation 6 1.2 Problem Statement 7 1.3 Research Question 8
1.4 Outline and Justification 8
2. Theoretical Overview 9 2.1 Origins of Outsourcing 9 2.2 Readiness to Outsource 12 2.2.1 Strategic Sourcing 13 2.2.2 Outsourcing Relationship 17 2.2.3 Environmental Factors 19 2.2.4 Financial Results 21 2.2.5 Customer Satisfaction 22 2.3 Research Model 24 3. Methodology 26 3.1 Data Collection 26 3.2 Measures 27 3.3 Data Analysis 28 4. Results 31 5. Conclusion 54
5.1 Overview of the Findings 54
5.2 Contribution and Further Research 56
5.3 Limitations 56
6. Recommendations 58
References 61
1. Introduction
Although vertical integration is often proposed as an alternative governance form to relationships (Harrigan 1985), specialization of activities still yields comparative advantages among firms (Grossman and Helpman 2002). These comparative advantages can be possibly exploited when firms choose to specialize, and focus on a single or small number of core activities. Based on this principle, the concept of outsourcing arises, and inter-firm specialization remains to be one of the key drivers of outsourcing (Campa and Goldberg 1997, unp.; Hummels et al. 2001; Jacobides 2005).
The current relatively unstable position of the economy has driven firms to outsource their billing activities, in pursuit of improving their cash flow management (Morgan 2009). Since the process of outsourcing can be seen as the externalization of resources by the outsourcing firm, this includes the forfeiting of a certain amount of control over intangible goods such as their own brand or goodwill (Bounfour 2000). This can be explained as the outsourcing party remains to a certain extent responsible for the output that the vendor produces, although it may have no control over the process. Herein lays the difficulty of giving up the aforementioned control over performing the activity in-house: how can one make sure that the outsourcing agreement is the best answer in a particular case? This question has been answered by a variety of authors, partially through the economical assessment of the potential costs that can be associated with outsourcing. This economical assessment has been included in the literature overview.
1.1 Current Situation
The analysis will be drawn up from a case study from the Billing and Collecting department of Ziggo B.V. (henceforth referred to as Ziggo), a Dutch cable company engaged in their core business of television, internet and telephone services. Throughout their billing and collection processes, the department has a number of externally contracted collection and bailiff agencies that perform a number of activities directly related to customers. At the moment, the last part of the payment trajectory is outsourced: once the customer is excluded from the services of Ziggo, the case is transferred to the external parties. This last part is referred to as the collection and bailiff activities, and whereas the former represents the amicable phase, the latter entails the judicial phase of the process. Due to regulatory constraints, the analysis constitutes the potential internalizing of the amicable phase of the process.
Although this situation has been relatively satisfactory up to this point, the continuously extending focus on customer relations may result in a different choice. This is possibly also the case for choices regarding costs and control. Consequently, the question arises whether a possible internalization of collection activities is preferable over the current situation. It is expected that there is a possibility that this internalization process can have a positive effect on the ability of Ziggo to focus on service leadership with excellent service, which the firm attempts to actively pursue.
be prohibiting firms throughout the entire chain from charging additional collection fees. As a result, a single collection fee per individual customer will need suffice for the entire collecting chain in the future.1 This could have serious consequences for the way in which collection agencies can operate, and subsequently also on the outsourcing decision. As a consequence, from a financial point of view, there is a possibility that it may prove to be more beneficial to alter the current situation of outsourced collection and bailiff activities to external vendors and internalize certain parts of the amicable phase of the collection chain.
1.2 Problem Statement
Outsourcing certain parts of a firm‘s payment trajectories provides a new array of difficulties, as its complexity is often influenced by the fact that there is direct contact between the firm‘s customers and the intermediary collection or bailiff firm. Adjusting the payment trajectory in dealing with consumer debt, debt collection agencies are a common organizational part to outsource. Acting on behalf of creditors, these agencies are specialized in their field of work. Consequently, there are benefits to use these agencies, including a relatively high degree of ease-of-use and time savings, making use of reputable firms and their specialized skills and knowledge, and keeping the firm within the boundaries of the law. However, disadvantages may include additional unforeseen costs, and the inability to successfully control the way in which the collection agencies engage with customers.2
Here the question emerges: what strategic factors may influence the decision to outsource or not, and how would these factors affect the efficiency and efficacy of the payment trajectory? These issues can be deemed relevant in the decision to outsource, including the assessment of the financial consequences as well as an analysis of its effects on customer satisfaction.
The importance of the financial assessment is pivotal, as one of the most potent reasons for firms to outsource their activities is to attempt to pursue cost-savings (Loh and Venkataraman 1995). Similarly, customer satisfaction is vital to any organization as well, as according to Hennig-Thurau and Klee (1997), it is deemed to be a necessity of competitiveness and organizational success. More specifically, Brown and Chin (2004) have recommended in their article to retain those activities that are interaction intensive with the firm‘s customers close to the firm, that is, inside the boundaries of the firm. Since the complexity of outsourcing certain parts of the payment trajectory is expected to potentially be affected by customer satisfaction, the make-or-buy decision could potentially pose extensive problems.
1
The Dutch Senate: Standards in magisterial costs of collecting
1.3 Research Question
The aim of the research is to examine what strategic factors of outsourcing readiness are most important to a higher degree of outsourcing. Consequently, recommendations can be provided. The research will comprise of a single research question, contributing to the culmination of data that will lead to recommendations for the firm. The research question will be accompanied by a number of propositions and hypotheses, which will avail in an attempt to provide a holistic and extensive answer.
Research question: What strategic factors of outsourcing readiness determine the degree of
outsourcing of payment trajectories?
The dependent variable in this research is the degree of outsourcing of payment trajectories. As a possible outcome, the firm can be advised to either retain its payment trajectory activities outsourced, to internalize part of the activity, or to internalize the entire payment trajectory.
1.4 Outline and Justification
Literature based on initial research on the concept of outsourcing will be discussed, as well as strategic factors of outsourcing readiness. Whereas the first three segments that will be addressed have been identified in outsourcing literature, the last two are applicable to the specific case of the outsourcing readiness of payment trajectories. The first three segments include strategic sourcing, outsourcing relationship, and environmental factors. The last two segments are financial results and customer satisfaction. The research question will be answered by using the propositions and hypotheses that have been built throughout the research. First, a comprehensive overview of the literature on outsourcing will be provided. Second, the methods of research will be explained. Third, the results are presented in three large segments: the results of the interviews, the results of the financial analysis and the results of the statistical customer satisfaction analysis. Fourth, a conclusion is provided. And fifth, a recommendation is provided for the case study in which normative and objective findings will culminate to enhance the practical applicability of the research.
The contribution of this research is established in two broad ways. This research will not only encompass testing of hypotheses that are relevant to the context of outsourcing readiness of payment trajectories, but also provide useful knowledge to the practitioner that can be used in the practical problem that has been established.
2. Theoretical Overview
In many industries generic activities can be executed separately from the core business (Jacobides and Winter 2005), leaving room for outsourcing these activities to third parties. Intrafirm and vertical specialization is also considered to be a driver of outsourcing (Campa and Goldberg 1997, unp.; Hummels et al. 2001; Jacobides 2005). Outsourcing may be addressed from a business level unit of analysis. However, from an industry or value chain level of analysis (Porter 1991), similar activities are often referred to as vertical disintegration (Jacobides 2005). This research encompasses a firm level approach in which it addresses a firm‘s individual decision whether to outsource or not.
The theoretical overview constitutes of two major parts. First, as a general introduction to the subject, the concept of outsourcing is discussed, in the manner that it is derived from the economic theorems that underlie the decision to outsource. Second, the factors of readiness to outsource are analyzed, wherein it identifies five broad segments of factors, three of which are identified in the literature and two of which are deemed particularly relevant in the decision concerning the degree of outsourcing of payment trajectories. The three readiness factors identified in the literature are: (1) strategic sourcing, (2) outsourcing relationship, and (3) environmental factors. The two additional factors that are added in the context of payment trajectories are: (4) customer satisfaction and (5) financial results. The various segments that have been included in the research framework contain hypotheses accordingly, culminating towards a research model that has been depicted at the end of the theoretical overview (fig. 4). The dependent variable in this research is the degree of outsourcing of payment trajectories.
2.1 Origins of Outsourcing
Outsourcing is a relatively delicate process, since it encompasses serious unilateral trade-offs from the procurer (Williamson 1981). In this section the economic origins of outsourcing will be examined, and subsequently analyze the trade-off that arises in such make-or-buy decisions. The economic perspective of outsourcing will provide an in-depth insight into the origins of the phenomenon, as well as a list of advantages and disadvantages of the make-or-buy decision. The origins of the concept of outsourcing can be traced back to the field of research on transaction cost economics (TCE). As one of the founder of TCE, Richard Coase (1937) defined the boundaries of the firm more as a decision variable, as a range of exchanges mandated by authority and direction. If the costs of using markets to pursue such exchanges would be greater than the costs of using authority, activities would be engaged inside the boundaries of the firm. TCE encompasses the trade-off between the costs of producing the good, as opposed to the costs of having the work done by another firm, with the accompanying transaction costs that it entails.
normative model, in the sense that it prescribes how transaction costs can be best used, positively influencing organizational performance (Noordewier et al. 1990). Better performance is achieved when the dimensions of the exchange are matched with the governance structure that is used. Therefore, the transaction rather than the commodity is the basic unit of analysis. Williamson (1981) examined transactions as the exchange of tangible or intangible products between actors, although these actors do not need to be outside the boundaries of the firm.
The three dimensions of transactions that Williamson (1979; 1981) identified are (1) the frequency of transactions, (2) the degree of uncertainty concerning the exchange; and (3) asset specificity, which entails the extent to which transactions between buyer and seller are supported by transaction-specific investments, where idiosyncratic investments encompass higher asset specificity. These dimensions are matched to the governance structure of exchanges. A distinction in governance structures is made between markets and hierarchies, with the possibility of the existence of hybrid forms. In the case where assets are merely non-specific to both the buyer and seller, market transactions may suffice. With semi-non-specific assets, bilateral market contracting is deemed more useful, internalization of specific activities is advised when assets are highly specific. Semi-specific assets require a hybrid form of bilateral contracting between buyer and seller. The reason for the higher need of hierarchical agreements when dealing with transactions of asset-specific investments is the need for continuity and stability, since these investments often require a longer development process to meet the exact needs of the buyer. Also, the specificity of investments encompasses a bilateral vulnerability, thus a higher degree of coordination and control is desired (Williamson 1981). Two distinct criteria have been used in this theory: the level of appropriability of result and the frequency of transfer (Teece, 1980). The latter creates a new dimension to the phenomenon of the outsourcer-vendor relationship, creating a grounded critique on the theory of TCE in that it principally neglects cooperative, social relationships between buyer and seller, irrespective of the type of transaction. Opportunism is therefore assumed to be positioned above relationships building between parties (Ghoshal and Moran 1996).
TCE has been a widely accepted economic framework, and it has been the foundation of many author‘s work. Whereas Armour and Teece (1978) have used the framework to explain varieties in organizational structure, it has aided Walker and Weber (1984) to address make-or-buy decisions. The TCE approach to the disintegration decision has been supported empirically (Anderson 1982; Monteverde and Teece 1982). Cheon et al. (1995) have linked the theory on transaction costs to the practical field of outsourcing by using a conceptual model that depicts the make-or-buy decision as a function of the total transaction costs of outsourcing (fig. 1). The relevance of TCE in the field of outsourcing is evident, as the choice to outsource or develop in-house resembles the choice that needs to be made in TCE between market and hierarchy.
Traditionally, outsourcing is spurred by the fall in transaction costs, through the globalization and digitalization of the entire economy (Geis 2007). This consequently enables firms to more closely monitor activities and force tighter quality control, which can largely be explained by the rise in the use of information technology to lower coordination costs. As a consequence firms increasingly use markets over hierarchies (Malone et al. 1987). Nevertheless, the fear for unilateral opportunistic behavior remains, especially in the case of asset-specific investments (Williamson 1979).
Another theory that has been used to describe the phenomenon of outsourcing is agency cost theory (ACT), although it has been used somewhat to a lesser extent. Agency cost theory has been developed by Ross (1973), Mitnick (1975), and Jensen and Meckling (1976). It constitutes the problem with regard to principal-agent dynamics, where the agent is asked to perform services on behalf of the principal. It encompasses a trade-off between behavior-oriented and outcome-behavior-oriented contracting of the agent. Agency costs entail the costs that arise when discrepancies arise between the objectives of the agents and principals. Alchian and Demsetz (1972) address the principal-agent problem as deliberate underperformance of tasks agreed upon beforehand on a contractual basis between multiple partners. They argue that this is possible through imperfect observability of the principal, as well as a misalignment of incentives between principal and agent. Since activity and the ownership of the result are separate (Jensen and Meckling 1976), agency costs do occur, although it has become less difficult for firms to monitor and thus prevent agency costs of outsourcing through the ongoing globalization and digitalization (Geis 2007). Still, three types of costs that are associated with agency costs still put severe strain on the outsourcing of certain activities. These costs include monitoring, bonding, and residual costs (Cheon et al. 1995).
Figure 2: The agency cost perspective on outsourcing (Cheon et al. 1995)
Cheon et al. (1995) argue that make-or-buy decisions will depend on factors that influence agency costs (fig. 2). In the case of outsourcing, the principal is the outsourcing firm, whereas the agent can be addressed as the outsourcing provider. The five factors that pose a threat with regard to ACT that Eisenhardt (1989) has identified are (1) outcome uncertainties that are caused by environmental factors such as institutional policies, economic climate, technological change, competitor behavior, etc.; (2) the degree of risk aversion of the outsourcing provider; (3) the degree of possible programmability or expected favorable behavior of the outsourcing provider; (4) the measurability of the outcome; and (5) the length of the principal-agent relationship.
outsourcer and vendor. Large unilateral investments should be avoided in order to keep a balanced sourcing relationship, and the separation of activity and ownership requires close monitoring to avoid deliberate underperformance.
The two origins of outsourcing that have been discussed in this section are transaction cost economics (Williamson 1981) and agency cost theory (Alchian and Demsetz 1972). Whereas there are large differences between the two, in essence they are quite similar, as both theories attempt to explain organizational behavior.
2.2 Readiness to Outsource
This section constitutes an overview of all strategic factors of readiness to outsource. This entails both factors that are relevant for outsourcing in general, and factors that are deemed to be applicable to the specific case of outsourcing payment trajectories. Whereas the former is related to the first three segments of readiness to outsource, the last two segments are part of the latter. The factors are strategic in the sense that they aim to find the ideal situation for a firm. The aim of this section is to analyze how the importance of the several factors of readiness to outsource is related to the degree of outsourcing.
It is imperative that the factors of outsourcing readiness that apply to outsourcing in general identified in the literature are broadly supported. For instance, Duncan (1998) states that the expectations of managers about relative market efficiencies are one of the largest influences on the decision to outsource, as well as to what extent relevant skills and competencies reside inside the boundaries of the firm. Similar to Duncan (1998), Quinn and Hilmer (1994) propose a number of guidelines: either the outsourced activity is not part of the firm‘s core competencies; the activity requires specialized proficiencies, the activity can be easily coordinated and closely monitored, or the activity is too costly to produce inside the boundaries of the firm. This resemblance in factors entails that the competencies and capabilities that reside inside the boundaries of the firm, as well as the assessment of relative costs are most pivotal in the assessment of the make-or-buy trade-off. When assessing the factors of readiness to outsource, these factors are generally supported throughout the literature. It is believed that although specific goals between practitioners and theorists may differ, they argue that outsourcing is able to benefit from ideas that have been developed in theory.
Third, the most pivotal environmental factors will be addressed. These factors include a market analysis regarding the relative bargaining position of the vendor as opposed to the outsourcer (Fisher et al. 2008; Jennings 1997; Venkatesan 1992), and the presence of knowledge relevant to the outsourced activity (Apte and Mason 1995; Campbell 1995; Martin et al. 2008). The fourth and fifth factor have not been associated with outsourcing in general, even though it can be argued that it is an imperative part of the decision whether to outsource or internalize payment trajectories. The fourth factor is customer satisfaction (Brown and Chin 2004). The fifth factor is the financial results that result from either outsourcing or internalizing payment trajectories (Loh and Venkataraman 1995).
2.2.1 Strategic Sourcing
The first section of outsourcing readiness that will be addressed is strategic sourcing. The relevance of strategy in sourcing decisions is evident, as there is an abundance of literary sources on strategic models on sourcing decisions (e.g. Apte and Mason 1995; McIvor et al. 1997; Quinn and Hilmer 1994). These strategic models will be discussed extensively in this section.
Make-or-buy decisions in contemporary business do not necessarily depend solely on cost efficiencies. Gottfredson et al. (2005) have stressed the increasingly large role of strategy in sourcing decisions. In this section, the way in which outsourcing is related to a firm‘s core business or competitive edge is discussed, a firm‘s business alignment to the outsourcing modes, as well as the relationship between outsourcer and vendor.
Core business and competitive edge. As described in the section on risks of outsourcing, the extent to which firms are willing to forgo a part of control on their activities is imperative to determine the outcome of the make-or-buy dilemma. Consequently, the question arises of to what extent the activities that are outsourced part of the core business of the organization. The same can be said for those activities that provide the firm with a competitive edge vis-à-vis their competitors. It therefore remains imperative that the outsourcer carefully selects what activity can be outsourced (Lacity et al. 1996). Fisher et al. (2008) refer to this as the most important success factor. By selectively picking those activities that need to be outsourced provides firms with more control, since it is no total outsourcing, more satisfaction, and less risk (Chen et al. 2002).
Generally, the core businesses of firms are most prone to be part of their competitive edge. An overdependence on vendors is something to avoid. It is imperative for firms to retain essential skills, and therefore not outsource key personnel (Baldwin et al. 2001). Firms need to make sure that there are employees left that can manage the outsourced activity in the future. In terms of strategic risk an interesting point has been made by Walker (1988), who stated that the greater the value the vendor of the activity delivers, the greater the strategic risk of that particular activity, since non-deliverance would lead to a greater decline in performance. Thus, the degree of risk can be linked to the extent to which the activity is part of the core business of the organization. In a similar research, Fisher et al. (2008) state that those activities that are strategically significant to the firm should not be outsourced. In the difficulties with the make-or-buy decision, Quinn and Hilmer (1994) have devised a matrix that can aid firms in that decision. They argue that strategic outsourcing depends on two factors: the activity‘s competitive advantage, and its strategic vulnerability (fig. 3). Ideally, strategic control is high when there is a high potential for competitive edge and it is relatively vulnerable strategically. When this is not the case, outsourcing is a real possibility.
Figure 3: Competitive advantage vs. strategic vulnerability (Quinn and Hilmer 1994)
Similarly, the hierarchy of strategic importance has been linked to the strategy that it should accompany (McIvor et al. 1997). Strategic items have a long term time horizon, and should therefore be outsourced to a committed, best-in-class partner. McIvor (2000) argues that outsourcing should only be carried our when the outsourcer has a clear strategic perspective. Yet, Insigna and Verle (2000) argue that outsourcing decisions made at the operational level in some cases are prone to lead to dependencies that create unforeseen strategic vulnerabilities, when strategic intent is neglected. If the sourcing is being conducted without proper cause, there is often an absence of strategic intent. Reasons for outsourcing, including trends or bandwagon effects, consequently have the ability to cause failure of outsourcing (Lacity and Hirschheim 1993).
complementary assets to its core activities. In that sense, activities have the ability to act as strategic components of the corporate strategy. In the case of payment trajectories, a possible competitive edge can be gained in analyzing the available supply of information derived from the payment trajectories. In a recent study, Sun and Li (2011) have described how access to information can allow firms to learn about heterogeneous customer preferences and better match customers to their profitability in order to ensure long-term profit, as well as to enable firms to improve customer retention. Paradoxically, Klein and Rai (2009) have described the inter-firm exchange of strategic information within a supply chain, where they argue that a clear motivation needs to exist between the partners in order to be able to successfully exchange strategic information. Yet, this still depends largely on the intent and interest of the parties in the chain.
The overall picture explains the essence of control of strategic parts of the organization. Strategic intent needs to be considered throughout the entire chain of supply of the organization, thereby attempting to avoid any strategic vulnerability through externalization of activities that are (potentially) part of the core business or competitive edge of the firm (Insigna and Verle 2000; McIvor 2000; Quinn and Hilmer 1994). Moreover, it may be necessary that assets that are deemed complementary to the firm‘s key activities need to be internal to the boundaries of the firm, as they have the ability to be or become a competitive advantage (Teece 1986), as in some cases informational goods are (Sun and Li 2011). As a result, it is suggested that only generic activities that are not part of the core business or competitive edge of the firm can be outsourced in order to protect the firm.
Proposition 1: The importance of potentially outsourced activities not being part of the core business or competitive edge of the firm is positively related to the degree of outsourcing of payment trajectories.
Business strategy alignment. The antecedents for outsourcing often do not match the business strategy that a firm employs. Yet, it is deemed imperative that the business strategy is aligned with the strategy and mode of outsourcing. Jennings (1997) supports this by considering the effect of the firm‘s business strategy upon cost, quality, and flexibility.
Welch and Nayak (1992) propose that the sourcing model of mere cost analyses should be augmented by adding both strategic and technological factors. For each technology that a firm is dealing with, special consideration should be given to: (1) the importance of the technology for competitive advantage; (2) the maturity of the process technology; and (3) the company's relative technological performance versus that of competitors. Apte and Mason (1995) have drawn up a strategic grid in order to determine an organization‘s relative performance efficiency of a service activity. The strategic importance of an activity and the organization‘s relative efficiency in performing that activity determine whether to make or buy.
stressed the importance of consistency between sourcing strategy and business strategy. The general focus of the firm needs to be on the critical core products, e.g. those products that the firm is distinctively good at making. Vendors should be selected on their comparative advantage in their field, either through economies of scale, or a fundamentally better cost structure. Outsourcing needs to be used as a tool to generate additional employee commitment and improve overall performance. In their article, Stark et al. (2006) stated that choosing the right outsourcing mode depends on the engagement-temporal dimension. This dimension includes four broad categories of activities of outsourcing: (1) the hands-off divesture, (2) the experimental – spin off, (3) the experimental – growing partnerships to divest, (4) the experimental – growing partnerships to potentially absorb. Important to recognize here is the engagement paradigm, in which many strategic models in this field are built. The level of engagement is therein related to the time period in which the development can take place.
This section suggests that the traditional cost advantages that a sourcing strategy may yield need to be augmented by clear strategic goals (Welch and Nayak 1992). These goals that are planned to be accomplished through the use of a sourcing strategy need to be scrutinized carefully and aligned with the business strategy, in order to avoid a misfit between the two (Jennings 1997; Venkatesan 1992). Therefore, it is deemed imperative that the outsourcing strategy is aligned with the business strategy alignment if a firm decides to outsource a certain activity.
Proposition 2: The importance of business alignment is positively related to the degree of outsourcing of payment trajectories.
Management involvement and commitment. Since the absence of support of middle and top management is one of the key causes of sourcing failure, a high level of involvement and commitment is required. Management style and focus act as one of the key determinants of outsourcing readiness (Campbell). Top and middle management involvement in the decision making process makes it far more likely that expectations are met then when a group acts alone (Smith and McKeen 2004). Furthermore, success rates are also higher when senior firm executives are strongly committed to the outsourcing process (Baldwin et al. 2001). Martin et al. (2008) have addressed the readiness to outsource and in doing so they have linked the concept of business management readiness for outsourcing to the presence of management support (Snyder-Halpern 2001).
The presence of management involvement and commitment is pivotal in the readiness to outsource (Campbell 1995). The reassurance of management support can encompass certainty in the outsourcing process. However, it is also necessary that management remains involved. This is not only true for top management (Baldwin et al. 2001; Martin et al. 2008), but also for middle management (Smith and McKeen 2004).
Proposition 3: The importance of a high degree of management involvement and commitment is positively related to the degree of outsourcing of payment trajectories.
al. 2005). It not only constitutes the way in which selection of activities needs to take place (Insigna and Verle 2000; McIvor 2000; Quinn and Hilmer 1994), but also takes the relation between the sourcing strategy and business strategy into consideration (Jennings 1997; Venkatesan 1992; Welch and Nayak 1992), and addresses the necessity for management involvement and commitment (Baldwin et al. 2001; Martin et al. 2008; Smith and McKeen 2004). The propositions that have been devised accordingly are listed in the section where the research model is shown.
2.2.2 Outsourcing Relationship
Although TCE places the principle of transactions above the cooperative, relational, and social aspect (Williamson 1981), Ghoshal and Moran (1996) emphasize the relative importance of relationships in inter-firm exchanges. It is argued that this is especially potent when the frequency of transfer increases (Teece 1980).
The relationship that is being developed between the outsourcer and the vendor during the outsourcing process can seriously impact the success of outsourcing (Baldwin et al. 2001). Building the outsourcing relationship is therefore deemed imperative for the success of the activity. Close and frequent communication is expected to aid both the vendor and the outsourcer. First, the way in which the relationship is initialized and developed is discussed, after which the extent to which the activity is defined and the contract properties are examined. There is a wide array of theories in organizational literature that describe inter-firm relationships, often originating from exchange theory (e.g. White and Levine 1961; Van de Ven 1976; Dwyer et al. 1987), resource dependence theory (e.g. Oliver 1990), or transaction cost economics (e.g. Cunningham 1980). In this field, Ring and Van de Ven (1994) have devised a process framework based upon exchange theory. The framework encompasses four dimensions: negotiations, commitments, executions, and assessments. Similarly, Kern and Willcocks et al. (2000) have analyzed the relationship‘s properties. These properties include interactions, contracts, context, structure, and behavioral dimensions. These theories will be analyzed more extensively in this section, as they are one of the few theories in that field that has included inter-firm contract issues.
Initialization and development of the relationship. Both the initialization of the relationship (Kern and Willcocks 2000) and the development of the relationship (Ring and Van de Ven 1994) are important in the outsourcing relationship.
trust and commitment (Jennings 1997). Furthermore, Ring and Van de Ven (1994) state that commitment can originate from two sources: the formal legal contract and the psychological contract, which may be more difficult to achieve. Even though a relationship will develop, it remains important that the outsourcing agreements need to be analyzed and potentially revised frequently in order to retain a high level of performance (Jennings 1997). This assessment needs to be based on the constant search for efficiency (Ring and Van de Ven 1994).
Assessing the mutual expectations each party hopes to draw from the relationship aids in establishing a successful initialization of the relationship (Kern and Willcocks 2000). This entails finding the right fit between the parties that engage in the sourcing agreement. The successful development of the relationship requires commitment (Jennings 1997). Commitment has been addressed by Ring and Van de Ven (1994), who discuss the two sources of commitment: legal and psychological contracts. Once it has been established, the search for efficiency causes the necessity of frequent revision (Jennings 1997).
Proposition 4: The importance of successful initialization and development of the relationship is positively related to the degree of outsourcing of payment trajectories.
Activity definition. Campbell (1995) states that the decision whether to outsource a certain activity or not is based on the comparison between the combination of service, quality and cost when it would be performed internally and when it would be performed externally. Yet, the decision is often not based on information that is that straightforward, it is often difficult to define a certain activity.
The importance of being able to define the activity well is described in this section. Fisher et al. (2008) argue that activities that are too complex should be not outsourced, since the outsourcer would be unable to control the outcome. This clear definition entails that: firms are able to state the expectations and development of the service level explicitly (Jennings 1997), the activity is well understood throughout the company, and management can exert higher control over the outsourcing agreement (Fisher et al. 2008). It is important for firms to be able to define the activity that they desire to outsource (Campbell 1995). A more detailed activity does not only provide internal advantages to the outsourcer, but also permits tighter outsourcing contracts (Barthélemy 2001). In addressing the readiness of a firm to outsource, Martin et al. (2008) have defined process readiness as the formalization of the outsourcing process. Being able to formalize the process is part of the activity. This is deemed imperative for outsourcing success, since explicit procedures, instructions and communications are necessary in order to govern the outsourced activities (Raymond 1990).
Defining the activity is closely related to successfully outsourcing an activity. Having a well-defined activity allows firms to control the service level (Jennings 1997), contract (Barthélemy 2001), and outcome (Campbell 1995; Fisher et al. 2008) to a larger extent. Control is best exerted through clear procedures, instructions and communications (Martin et al. 2008), which can only exist when the activity is well-defined (Raymond 1990).
Contract duration and flexibility. Contracts that are too long or too inflexible can pose a serious threat to the success of the outsourcing agreement. Shorter term contracts (between 1 and 3 years) are more likely to be successful, because these contracts are able to encompass less uncertainty and more flexibility, to continuously motivate the vendor to provide quality output, and to have a fair market price.
Shorter contracts generally tend to lead to more successful sourcing relationships (Lacity et al. 1996; Smith and McKeen 2004). Moreover, tighter contracts with additional clauses that support flexibility, evolution and reversibility are inclined to leads to more successful sourcing (Barthélemy 2001). Gellings and Wuellenweber (2006) have emphasized the importance of contract flexibility in their research. Longer term contracts can pose a risk in that they are often inflexible in changing environments (Barthélemy and Geyer 2004). Furthermore, Martin et al. (2008) have stated that an activity is only ready to outsource if its architecture (e.g. contract) is flexible enough to be able to support the potential environmental changes.
Jennings (1997) advises not to engage in contracts that are too complex. This is supported by Williamson (2008), who addresses contracting through the absence or presence of asset specificity and safeguards. It is argued that the complexity of asset specificity should be met by the complexity of the relationship and contract. Furthermore, Ketler and Walstrom (1993) argue that the characteristics of such a contract should be based on experience, planning, technology and personnel, contract issues, communication, transfer of personnel, and financial stability.
Contract duration and flexibility is discussed by a wide variety of authors. It is argued that shorter contracts are inclined to lead to more successful sourcing relationships (Lacity et al. 1996; Smith and McKeen 2004), whereas long-term contracts can pose serious risk when firms need to deal with a changing environment (Barthélemy and Geyer 2004). Contract flexibility is also imperative for successful sourcing relationships. This has been addressed by Gellings and Wuellenweber (2006), who have emphasized the importance of contract flexibility. It is argued that adding clauses to particularly tight contracts can aid in contract flexibility (Barthélemy 2001).
Proposition 6: The importance of contracts with short duration and flexibility positively affects the degree of outsourcing of payment trajectories
2.2.3 Environmental Factors
Duncan (1998) argues that the choice to outsource certain activities to third parties is
generally executed when managers‘ expectations about the market are that these are more cost efficient than integrating that activity vertically, or when certain skills, knowledge or
experience is only available through market offerings and consequently not available inside the boundaries of the firm. This underscores the importance of environmental factors from a firm perspective.
Environmental factors remain of some importance in sourcing decisions. Jennings (1997) argues that the firm should be alert to environmental changes, and develop its sourcing strategy accordingly. Fill and Visser (2000) argue that one of the main components of triggers for sourcing decisions is the presence of a unique environmental factor. Characteristics of supply markets can either be beneficial or detrimental to the success of the sourcing relationship. For that reason, the vendor‘s environment needs to be analyzed extensively. Furthermore, it could pose difficulties when knowledge and expertise is not freely available to all parties. Both the characteristics of the supply markets and the availability of relevant knowledge or expertise are items that will be addressed below.
Supply markets. Internal competitiveness and future competitiveness of the vendor is important when engaging in an outsourcing relationship. Among others, Apte and Mason (1995) stress the importance of integrating strategically significant activities, but even generic activities need to be analyzed carefully. Although Venkatesan (1992) advises to engage in sourcing agreements with those vendors that have a comparative advantage in their field, it has been argued that if there is a possibility of monopolizing its market in the future, the vendor can procure total price control over the outsourcer. To be able to continue to obtain a fair price for the activity being outsourced, and thus having a successful outsourcing agreement, the activity needs to be in competitive supply and remain so in the future (Fisher et al. 2008). Jennings (1997) proposes a checklist to assess the viability of a supplier market. He suggests identifying the total number of viable vendors, to ensure that there remains enough vendor competition in the future, to closely evaluate switching costs among vendors, and to keep the firm‘s favorable bargaining position by refraining from creating a monopoly in the vendor market. Even if there is an abundance of supply in the vendor market, difficulties may arise, especially when the activity is difficult to measure. Grossman and Helpman (2002) have addressed the additional costs of outsourcing in terms of relatively high search costs of vendors. Since this may vary among cases, it is an important factor to consider. Furthermore, there is sometimes an inability of vendors to directly prove their quality to potential outsourcers, which consequently creates a hold-up problem (Grossman and Helpman 2002; Klein et al. 1978).
Proposition 7: The importance of a favorable bargaining position for the outsourcer positively affects the degree of outsourcing of payment trajectories.
Availability of knowledge. Often vendors possess knowledge that outsourcers are unaware of. Moreover, changes in knowledge can create new situations. The extent to which business management is ready to outsource, according to Martin et al. (2008), is dependent upon the extent to which the outsourcer‘s managers possess relevant knowledge about the activity (Bassellier 2001).
Furthermore, Campbell (1995) stresses the importance to look at the context of the outsourcing agreement, which includes legal issues that may arise. These issues can originate from a wide array of sources. Especially in the case of cross-border agreements, legal differences can be of serious importance to the firms that are planning to outsource (Apte and Mason 1995). It has been argued that the use of experts in the field can reduce this uncertainty, as they are likely to know everything there is to know about the relevant legislation (Belcourt 2006).
The availability of knowledge may be a bottleneck in the success of sourcing relationships, especially in cross-border agreements (Apte and Mason 1995). Several authors have described the same phenomenon from a slightly different scope. Whereas Martin et al. (2008) described the readiness of business managers as dependent upon the availability of knowledge about the activity; Campbell (1995) observed the potential lack of knowledge concerning the outsourced activity‘s environment as a whole. Apte and Mason (1995) merely addressed the importance of legal issues.
Proposition 8: The importance of freely available knowledge and expertise is positively related to the degree of outsourcing of payment trajectories.
The contextual factors are particularly important to consider in rapidly changing, turbulent environments. Monopolies among vendors should be avoided and they can originate from a lack of supply in the present or future (Fisher et al. 2008), or the presence of relatively high switching costs between vendors (Jennings 1997). An overdependence on certain vendors can lead to a weakened bargaining position for the outsourcer. Furthermore, the free availability of knowledge relevant to the outsourced activity prevents unpleasant surprises (e.g. legal changes) for the outsourcer (Campbell 1995; Apte and Mason 1995).
2.2.4 Financial Results
Although it is assumed that firms can obtain comparable advantages through specialization (Grossman and Helpman 2002), and profit from that specialization by being able to exert cost efficiencies (Loh and Venkataraman 1995), it may be possible that these firms are unwilling to share that wealth. This may especially be the case when there is a clear comparative advantage for that vendor (Venkatesan 1992). As a result, the outsourcer‘s bargaining position may prohibit it from obtaining a competitive offer (Fisher et al. 2008). Also, it may be relatively difficult to define the activity and consequently unclear where the actual advantage lies (Campbell 1995). As a result, the outsourcer may not be able to benefit from that relationship, whereas the vendor may prosper. Whereas the literature suggests that specialization yields better results, it may prove to be beneficial to examine the financial repercussions of pursuing an internal payment trajectory as opposed to outsourced collection and bailiff activities.
Proposition 9: The financial results of payment trajectories are positively related to the degree of outsourcing of payment trajectories.
Cost efficiencies are important in being able to benefit most from outsourcing a firm‘s payment trajectories (Loh and Venkataraman 1995). Yet, willingness to share the wealth of specialization may be non-existent, through absence of market competition or the inability to clearly define the activity (Campbell 1995; Fisher et al. 2008). Therefore, the financial results of those payment trajectories of collection and bailiff activities may be negatively related to outsourcing those activities to outside vendors.
2.2.5 Customer Satisfaction
In order to provide a holistic view on the topic, the field of customer satisfaction will be discussed. Furthermore, the constructs that are used in the analysis are discussed and the corresponding hypotheses are provided.
The research on customer satisfaction in relation to outsourcing can be considered subliminal. Faustman (1982) stated that collection agencies need to be careful with aggressive collection techniques, as they may pose serious ethical and legal risk. Although firms invest heavily and continuously in order to create a successful and well-known brand name, and accumulate goodwill from both other firms and customers, these intangibles are impressible for potential damage in an outsourcing relationship (Bounfour 2000). Preserving customer satisfaction has also been directly linked to outsourcing to independent service representatives. Following the article of Brønn (2008), the relational aspect of the management of customer relationships should surpass the reputation of firms in their respective relative importance. She argues that debt collection relationships are preferably avoided, due to the unpleasant nature of the necessary actions in that field. As one of the few authors that examine customer satisfaction for outsourced activities, Brown and Chin (2004) have examined the leverage that the outsourcer retains over customer satisfaction and loyalty within the outsourcing decision. Since the influence of perceived service quality on customer satisfaction is only modest, they suggest that either outsourcers need to be in direct contact with customers, or that their interests are protected severely by contractual means. Moreover, outsourcer support of the vendor positively affects job satisfaction, which positively influences customer satisfaction. By following the conclusions drawn from the article of Brown and Chin (2004), it can be argued that ideally firms should retain the control over the payment trajectories in order to retain the control over customer satisfaction and loyalty.
Hypothesis 1: The degree of outsourcing of payment trajectories is negatively related to customer satisfaction.
Additionally, constructs have been used to describe how the decision to either outsource or internalize payment trajectories influence customer satisfaction. In this section, the constructs that are particularly applicable have been elaborated upon. Following the line of constructs that have been described in this chapter, the hypotheses that have been depicted below arise. The four factors that will be used to assess the make-or-buy decision concerning payment trajectories are customer appreciation, customer loyalty, company image and customer trust.
Customer appreciation. The construct of customer appreciation can be viewed as part of customer loyalty. Customers need to feel that they are valued by a firm, and not to be taken for granted (Goff 2009). By doing so, customer retention may be strengthened (Anderson and Mittal 2000). It is hypothesized that customer appreciation will be negatively related to the degree of outsourcing of payment trajectories, e.g. that customers will feel more appreciated when they are obliged to deal with an internal collection agency.
Hypothesis 1a: The degree of outsourcing of payment trajectories is negatively related to perceived customer appreciation.
situational influences and marketing efforts having the potential to cause switching behavior‖, meaning that the strength of brand loyalty is potentially greater than that of exogenous influences or marketing efforts. Yet, De Wulf et al. (2001) argue otherwise. This poses an interesting conundrum, as it juxtaposes the rationality of consumer behavior (Anderson et al. 1994) with the repetitiveness of purchase. As a more straightforward view, Anderson and Mittal (2000) have established the link between customer satisfaction and loyalty. Loyalty is described in many different forms, even though the essence remains the same: it entails a commitment from the customer to continue to return to the firm, even though more favorable alternatives may exist in the marketplace.
Hypothesis 1b: The degree of outsourcing of payment trajectories is negatively related to customer loyalty held by customers.
Company image. Several studies (Cameran et al. 2010; Homer, 2008; Hu et al. 2009) examined the influence of customer satisfaction on corporate image. Fombrun (1996: 72) defined reputation as ―a perceptual representation of a company‘s past actions and future prospects that describe the firm‘s overall appeal to all its key constituents when compared to other leading rivals‖ and he established a cross sectional relationship between reputation and financial performance. It is argued that brand reputation and image can lead to a competitive advantage (Gray and Balmer 1998). Image is formed through communication with the customer whether the firm wants to or not (Bernstein 1984). Therefore, it is questioned what the influence is of internalized or outsourced payment trajectories on firm image. Arguably, as a brand extension, payment trajectories can be of great importance to a firm‘s image (Martínez and Pina 2005).
Hypothesis 1c: The degree of outsourcing of payment trajectories is negatively related to the firm image that is perceived by the customer.
Customer trust. The relationship between trust and customer satisfaction has been described by Harris and Goode (2004), as well as Yim et al. (2008). The construct of trust generally entails a rather ‗calculative process‘ of customers, where a certain object (in this case a brand) is able to continuously meet its obligations, as well as a trade-off between the estimated costs and rewards of staying in the relationship (Doney and Cannon 1997).
Hypothesis 1d: The degree of outsourcing of payment trajectories is negatively related to trust held by customers.
These four constructs are selected because of their wide applicability in the field of customer satisfaction, the fact that they are easy to understand in a questionnaire, and because they appear to be especially relevant in the field of outsourcing payment trajectories.
negatively related to the degree of outsourcing of payment trajectories. The constructs that are used in the outsourcing of payment trajectories are customer appreciation, customer loyalty, company image and customer trust.
2.3 Research Framework
The hypothesized research model clarifies the links that have been made in the literature and culminated in this research. These links have been identified by using hypotheses. The three main topics that have been identified in the literature as being associated with outsourcing are (1) strategic sourcing, (2) outsourcing relationship, and (3) environmental factors. Additionally, two factors have been added to the factors of outsourcing readiness of payment trajectories. These factors have been hypothesized to be specifically applicable in the outsourcing of payment trajectories. The factors are (4) financial results and (5) customer satisfaction. Subsequently, the research framework that includes strategic factors of outsourcing readiness is combined in a research framework (fig. 4).
Figure 4: The hypothesized research framework
3. Research Methodology
The research methodology comprises of three sections: data collection, measures, and data analysis. The sources of data, the measures and constructs that have been used in the analysis and the methods of analysis are discussed.
3.1 Data Collection
This research entails both qualitative and quantitative sources of data. The majority of sources will constitute of qualitative data, which originate from interviews held with relevant Ziggo employees and vendor employees, which will allow for an in-depth analysis of data. Internal employees and external partners that are interviewed are selected based on their knowledge and expertise on the subject. Because of the wide variety of necessary expertise and knowledge, a total of seven interviews have been conducted, including interviews with lower level management up to top level management within the Ziggo Customer Relations domain, and external collection partners of Ziggo. Moreover, both the Billing and Collecting perspectives have been incorporated. By examining the relevant issues from an alternative and extremely relevant perspective, it has aided the research in multiple ways. This is because the use of multiple perspectives strengthens the construct validity of the case study (Riege 2003). Moreover, the two collection partners are contrasting sources of evidence in terms of duration of relationship and degree of trust in the relationship.
A large amount of financial data is available for this research to analyze the financial viability of the alternatives that are available in the make-or-buy decision. This has been based on the monthly yield reports that Ziggo is able to conjure from its external collection and bailiff partners, which includes the collection costs that are associated with the outsourcing of the firm‘s payment trajectories. The data constitutes either the analysis for the full year for the first six months, or the analysis for half a year for the last six months. This is because these yield reports entail a guaranteed base of 95 % over the full year. The second half of the year for the last six months has been derived from the trend that is seen in the second half year of the first six months.
Furthermore, quantitative data on customer satisfaction has been collected from Ziggo customers that have been listed as defaulters in the recent past. These defaulters were contacted by e-mail, because e-mailing has the ability to contact many customers relatively easily and quickly. An adequate response rate is extremely important in order to be able to conduct a reliable research. Yet, since it concerns defaulter customers, a higher response rate may not be realistic. This is because of the unwillingness of these customers to participate after they have paid. Over 3100 customers have been contacted, and of that total over 1500 e-mail addresses were no longer existent. Furthermore, it can be assumed that of the nearly 1600 remaining e-mail addresses around 75 % is still active. Thus, with 56 responses out of the total 1199 defaulters, a response rate of 5 % has been achieved.
the quantitative part of the research constitutes a tentative, counterfactual analysis, since half the statements that are used can be addressed as hypothetical to some extent. This entails that is it more difficult to respond objectively to these statements and the the results can consequently be addressed as somewhat biased.
The interview with the first respondent has been piloted, where the necessary additional information has been collected afterwards by completing the interview questionnaire. This has increased the reliability of the qualitative part of the research (Riege 2003).
3.2 Measures
In this section, the constructs that have been used are described, as well as the method of analysis. The constructs are discussed according to the structure that has been used throughout the paper, in which the factors of outsourcing readiness are discussed first and the constructs of customer satisfaction second. The factors of readiness to outsource are divided into five broad segments: (1) strategic sourcing, (2) outsourcing relationship, (3) environmental factors, (4) financial results, and (5) customer satisfaction. The latter segment also includes a number of control variables, which will be elaborated upon in this section as well.
Core business and competitive edge, business strategy alignment, and management involvement and commitment. These constructs are part of strategic sourcing of the factors of outsourcing readiness, and outcomes can solely be derived from qualitative sources. The constructs of core business, competitive edge and business strategy alignment may be described as the most arbitrary. However, since multiple interviewees are asked similar questions on that topic, the results can be addressed as reliable.
Initialization of the relationship, activity definition, contract flexibility and duration, and development of the relationship. All of these constructs are part of the outsourcing relationship paradigm. The largest part of data will come from interviews with employees who have access to that particular type of information. However, in terms of activity definition and contract flexibility and duration the analysis will also encompass the assessment of current contracts with vendors.
Supply markets, and availability of knowledge. These constructs are part of the environmental factors that are relevant to the outsourcing readiness. This qualitative data will originate from both Ziggo employees and collection agencies, since only the difference between the two can constitute the true availability of knowledge that one party has no possession of.
Financial results. Since financial statistics are readily available to specific employees, the analysis of this construct has not only encompassed a qualitative, but also a quantitative assessment of the financial data. This quantitative analysis is based on the overall yield that Ziggo obtains from its collection and bailiff contracts, as well as the collection fees that are charged by external collection and bailiff firms.
